Why Income Inequality Has Little to Do with Poverty

Next month the Institute for Faith, Work & Economics is launching its first edited volume, For the Least of These: A Biblical Answer to Poverty. I author a chapter on income inequality, and the first thing to know is that income inequality doesn’t have much to do with poverty (as I’ll explain). So why would we include a chapter on it in our book?

Income inequality can reflect theft and abuse of power, and in those situations, we must stand up and stop it. However, income inequality is a natural part of the human condition, and when a result of well-functioning, voluntary trade protected by a rule of law, it can be the sign of a vibrant society full of opportunities for the rich and the poor.

This is because those in the lowest income brackets should expect lots of income mobility, and their position at the bottom continues to improve.

It’s complicated, like much of the rest of life. Discerning what aspects of income inequality are inherently unjust is necessary for fostering productivity and thwarting theft and corruption.

When Income Inequality is a Reflection of Theft

Historically, income inequality has been a sign of theft by the rich who were stealing from others. It has also indicated an absence of modern market trade.

Generally, it was very difficult to escape the conditions of poverty in Old Testament times,where markets were small and sporadic and income mobility was largely unlikely, unlike modern conditions…Those who achieved wealth and riches and became socially strong could use that position of strength to oppress those of another class, namely the poor (Amos 2:7; 4:1; 5:11). The rich did not oppress the poor simply because they were rich but because they were sinners. Part of this oppression could be seen in an insatiable hunger for more land (Amos 8:4 ; Isaiah 3:15). This, in turn, led to driving the poor off their inheritance (Micah 2:2 ; Isaiah 5:8-10). As the prophets warned, Yahweh was sure to see such that outright disobedience of his law was punished (Amos 2:13-15).

Kaiser makes an important point in the first line of the above quote: in the days and times of the Old Testament, the vast, global markets we have today did not exist. These markets have transformed the lives of everyone for the better, not just the rich.

Nothing can compare to the seemingly trivial aspects of our daily lives that we take for granted. The razor you use, the microwave, the dishwasher, and the refrigerator are just some of the modern miracles we hardly think about. In this country, even those in the lowest income quintiles have access to them.

Prior to 1500 AD, life was a struggle for survival and many needs for most people went unmet. Those that were rich were often political leaders who lived off the backs of the population. They often acquired their riches through theft and oppressive tax confiscation, keeping nations and people poor. Yet even those who were able to live off the backs of others were not rich in the terms that you and I are today.

When Income Inequality is a Reflection of Flourishing

What has changed is not the sinner’s heart, but the institutional arrangement which fosters acquisition of income through the service to another, rather than pillaging. This transition is new in human history. Only in the last two hundred years has the West largely made this institutional shift, and massive prosperity for all income brackets is the result.

An understanding of how wealth is generated is important:

Without voluntary trade and value-creation (people serving other people through trade), large scale wealth creation and prosperity are impossible.

In the conditions described by Kaiser, wealthy people had automatic power and could oppress others.

The advent of modern markets takes away the power of the wealthy because they have to serve us to maintain high levels of income.

The advent of modern market trade brought on by increasing specialization has brought us to the shift from surviving to thriving. It represents a historical and global transformation in the ability of individuals to earn higher levels of income and wealth, and to do so through value creation, product and service innovation, and the overall service of humanity.

Did you know that over one hundred million people in the US have air conditioning in their homes? Or that ninety-nine percent of families living at or under the US poverty thresholds have a refrigerator? These things are incredibly important for our standard of living. It’s even more important that in a wealthy country like the US, the poor have access to them.

What This Means for Income Inequality

In this world of greater flourishing, we also observe greater levels of income inequality. This occurs because customers in markets value things differently, and that value is reconciled with the scarcity of resources required to produce the things we need and want. The benefit is that all levels of income, particularly those of the poor, are constantly increasing in a prosperous society, a phenomenon known as income mobility. This means that if you are born poor, you are not necessarily destined to stay poor.

Income inequality is not necessarily a sign of poverty in a flourishing society. Income inequality deals with how income is held over a society. Unless everyone is exactly equal, there will always be a top and a bottom. What matters is how the folks at the bottom fare and whether they have opportunities to use their God-given creativity and skills to give them income mobility. We’ll discuss income mobility in the US in more depth next week.

Rather than directing our energies toward the biggest incomes, perhaps our focus should be directed toward how we can help those trapped in poverty in this country, those who are born poor and stay poor. This might give us a better picture of how to help the least of these.

Editor’s note: This is a continuation of our series of excerpts from IFWE’s forthcoming book, For the Least of These: A Biblical Answer to Poverty, which is available for pre-sale here. This post was adapted from Anne Bradley’s chapter on income inequality.

Dr. Anne Bradley

Anne Bradley, Ph.D. is Vice President of Economic Initiatives at the Institute for Faith, Work & Economics and the George and Sally Mayer fellow for Economic Education and Academic Director at The Fund for American Studies. She served as co-editor and contributing author to IFWE’s Counting the Cost: Christian Perspectives on Capitalism (Abilene Christian University Press) and For the Least of These: A Biblical Answer to Poverty (Zondervan). Anne received her Ph.D. in Economics from George Mason University. She is a visiting professor at Georgetown University and has previously taught at George Mason University and at Charles University in Prague.

“Income inequality can reflect theft and abuse of power, and in those situations, we must stand up and stop it. However, income inequality is a natural part of the human condition...”TwitterFacebook

“Income inequality is not necessarily a sign of poverty in a flourishing society. Income inequality deals with how income is held over a society. Unless everyone is exactly equal, there will always be a top and a bottom.”TwitterFacebook

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jonathanhakim

This reads as some sort of reflexive defense of unregulated capitalism as God’s holy plan. Do you honestly believe that “the advent of modern markets takes away the power of the wealthy”? That’s not remotely true – even in modern markets, the wealthy have enormous power to manipulate their laborers, manipulate their consumers, and manipulate the political systems. And the greater the income inequality, the more power they have to do this.